MP’s Ask Question Over Energy Suppliers Tax Contributions

By Cynthia Taylor

MP’s expressed outrage about the finding that energy companies like RWE and other energy companies have paid very little towards corporation tax and then show significant profits.

The findings found that members of the Big Six, a group of energy suppliers, were paying very little or even no corporation taxes while they were reaping substantial profits from consumers high utility bills. This new research has prompted MP’s to demand reforms in the way the industry is being regulated.

RWE NPower, who has 6.6 milllionscustomers did not pay any corporation tax between the years 2009 to 2011. Scottish Power out of £1.2bn profits only paid £102m tax during 2012, this despite the fact that the lowest corporation tax if only 20%.

The Germanowned company E.ON onlypaid £532m corporation tax between 2007 to 2011 on their pre-tax profits of almost £5bn.

The French owned EDF paid just over £200m,during 2012 on their pre-tax profits of £1.7bn.

The figures are not easy to come by because these companies being foreign multinational subsidiaries. Thesedetails only emerge when Caroline Flint, the Shadow

Secretary of Labour, approached the companies and got the information. This has inflamed the public debate with regard to fuel prices with public trust of energy companies is at aall time low.

The revelations have drawn outrage yesterday from MP’s and they gave senior executives from the energy companies a severe grilling and things at times got ‘bad-tempered’ at a select committee.

Labour MP, Ian Lavery, asked RWE NPower about the fact that in the past three years they had reported profits that totaled £766m yet they had admitted that they had not paid any corporation tax in that period.

He continued that people who never questioned yet paid their taxes were ‘sick and tired’ of seeing companies that were ‘hugely profitable’ and yet they use, all the tricks in the book, to not contribute their share of the tax burden. Many hard-pressed families are reeling from sky rocketing energy bill, and that they would be astonished to find that their energy companies are making hundreds of millions of pounds in profits, yet they are not paying their fair share in taxes.

Tim Yeo who is chairman of the committee said that he did not think the companies grasped the the extent of the public’s disgust of them. He felt they should have been more ‘abject’ with regards to their apologies for the mis-selling of their products,whichmeant that tens of thousands, of consumers, were now paying more than they should be. He also said that consumers who were watching the proceedings would feel that these companies have not yet learned their lessons.

At some point in the hearings, which was close to decending into a farce, as these executives became quite tetchy under the exasperated questioning from the MPs. The MP’s focused on public confidence in the industry is being destroyed because of soaring prices, the over complex tariffs and billing; mis-selling of of the energy companies products with a result recently fines hit a record £10m for SSE, the accusations of the companies profiteering and now this issue of tax.

Labour MP, John Robertson, at one point referred to the mis-selling scandal and asked chief executive Tony Crocker of E.ON if he was ‘squeaky clean’ to which the executive replied ‘It’s too early to say.”

The companies have responded that they were investing billions of pounds in infrastructure im the UK for wind farms and renewable power plants, and that the law has allowed them to offset this expenditure against tax liabilities.

RWE NPower’s chief executive Paul Massara said that there was a simple explanation why they have not paid any corporate tax over the past three years, that they had effectively invested about £5bn over the last five years towards the building of power plants, job and employmentcreation, and doing their bit to keep the lights on. He continued that had they not made this large investment they would not have had the deductibility that is allowed, that it was a simple accounting rule in the UK.

Chief executive of Energy UK, Angela Knight referred to aErnst & Young report, that has found that the sector had paid proportionately more tax than any other sectors in comparison to its contribution towards the GDP. She continued that the energy industry recognizes the role that it play towards the economy, insulating people’s homes, investing more and also paying local taxes.

Caroline Flint said that many of the companies were investing heavily into new generation, of which she welcomes, and she mentioned that they would be able to claim capital allowances to offset against tax liabilities. However, she said she was surprised and very concerned to find out that three of the six energy giants have significantly lower tax rates than would be expected, and that one of them appear to have not paid any corporation tax.

The problem, in part, with working out what tax is due by energy companies is that fact their businesses are very complex with regard to their organisation. The selling of energy to consumers and the retail market, isquite separate from energy generation business, and these major players have also got energy trading arms, that sell and buy power on a daily basis on the "spot" as well as futures markets.

Tim Yeo said the companies cannot get away from the concerns that the companies, are manipulating these factors of business, in order to conceal their margins from the customers. He felt that greater transparency is needed to be able to win back the public’s confidence.

E.ON pointed out that they had invested £5.9bn between 2007 to 2011 and this is more than they made in profits, that they had paid £885m for PAYE and National Insurance, plus a further £500m for the climate change levy as well as £213m for VAT.

EDF Energy said they had invested £1.3bn during 2012, and that this was more than thier operating profit of £801m.

Of the Big Six,Centrica who is the owner of British Gas, have been paying bigger tax rates than the foreign owned companies. British gas paid £651m in corporation tax during 2011 on their adjusted operating profits which wasjust over £2bn. It paid almost £500m in taxesduring 2010 and more than £400m during 2009 plus investmentsin new infrastructure. SSE, who is also UK owned company, they paid more than £200m in corporation tax on their profits of £1.3bn.

Last week the big six energy companies were accused of being "cold-blooded profiteering" when the official figures had showed their retail profits had more then doubled over the past 18 months and they were now earning on average about £95 in profit for each household on the dual-fuel bills.

Ofgem the industry regulator produced estimates and said that profits per from householdscould probably reach £100 over the next 12 months.